Lucky Fiakpa, Funmi Komolafe, Victor Ahiuma-Young and Franklin Alli
13 January 2009
The Nigerian financial system is undergoing intense stress and this is no understatement. There is uncertainty in all the markets at the moment.
The capital market is in a mess with share prices now selling at all time low levels. The money market is not better.
Inter bank transactions have virtually come to a halt as a result of the naira crash; credit lines to manufacturers is drying up; interest rate is heading for the roofs as foreign creditors call back their loans to Nigerian banks and inflation rate is moving in all direction but downwards.
The foreign exchange market, which for almost a year now has been stable, suddenly lost ground against major traded currency late last year and has not been able to recover since then.
Contrary to the continued reassurance by managers of Nigerian economy that the nation's economy, especially the banking sector, is insulated from the global financial meltdown, the banking sector is now actually at the receiving end.
As a result of increased cost of doing business occasioned by global crisis, some banks are now on the verge of laying off thousands of workers as part of strategies to stay afloat reminiscent of what is happening in Europe, Asia and America.
Banking Sector
Vanguard authoritatively gathered that a leading first generation and two new generation banks (names withheld) with their headquarters in Marina, Lagos and Victoria Island respectively, have almost concluded plans to retrench not less than three thousands workers in response to the consequences of world economic slow down.
Since the 2005 banking sector consolidation, one of the banks had carried out not less than three retrenchment exercises which affected over two thousands workers, while the other two banks had also carried one or two retrenchment exercises.
According to a senior staff in the first generation bank, who spoke to Vanguard on condition of anonymity, "the effect of the global financial melt down is already here and I can tell in few months time you are to see the full scale in the financial sector of the nation's economy. Banks like ours that have direct link and are collaborating with some banks in Europe and America are already feeling the heat. The job losses are going to be massive.
"In our case, for a start, the job losses cannot be less than 1000. The other two banks may each retrench more than that, never mind what the government and its agents are saying. I think they are just economical with words probably to avoid panic. You can see what has been happening in the stock market since last year."
Vanguard investigation revealed that organised labour in the nation's financial sector may have got a wind of the planned massive retrenchment exercise and is calling for a united front by labour movement in the country and its allies to confront the impending mass job purge.
Under the umbrella of the Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI), in a recent statement called for immediate detachment of Nigeria from the Bretton Wood institutions such as the International monetary Fund (IMF) and the World Bank, to save the nation's economy from the imminent economic predicament.
President of ASSBIFI, Comrade Adeshina Lasisi, in a statement said: "As the global financial turbulence spreads, if not quickly checked by severing our strings with neo-liberal, Bretton Wood institutions like IMF/World Bank, many socio-economic rights of workers and political rights of citizens would be attacked.
The most apparent threat is the imminent and menacing mass retrenchment of workers, embargo on employment, arbitrary reduction of staff emoluments especially in sectors like the oil/gas, financial and communication, and of course, attacks on the terminal benefits of workers.
"All unions and workers must join hands to build a vibrant movement to protect the rights of Nigerian workers in this year because during the period of crisis and economic stagnation, workers are usually the first causalities.
The organized labour and the informal sector must link up with the progressive civil society groups to contextualize the campaign for the protection of workers' rights. The immediate past is replete with instances of how labour and civil society served as the only formidable opposition in the country. We can do it better."
Real Sector
The job loss is not likely to be restricted to the banking sector alone. The real sector is also likely to be affected. Vanguard investigation reveals that some operators are already thinking of possible job cuts and their reason for this is straightforward.
The falling value of the naira is likely to increase the cost of production and with the demand structure of the economy already over-stretched, it would be difficult to pass additional cost to consumers without serious consequences.
With most warehouses already overflowing with stock of unplanned inventories the only way to reduce cost and stay in business would be to downsize the workforce.
Against this backdrop therefore, the Manufacturers' Association of Nigeria, (MAN), has called on the Central Bank of Nigeria (CBN), to do something to halt the downward slide of the Naira so as to save the economy, particularly, the manufacturing sector from another round of agonising moment.
Speaking on behalf of manufactures, yesterday, MAN President, Alhaji Bashir Borodo, said the depreciation would have an adverse effects on the cost of production in two ways. First, he said cost of imported raw materials will rise which will further hike cost of production, and, of course, lead to increase in general price level across the country.
He further asserted that the falling value of the Naira, if not arrested could lead to increase in interest rates.
"As more Naira is generated to buy dollar in the foreign exchange market, what would be left for lending to businesses would be less, which will in turn, push up the lending rates by banks," he noted.
The Central Bank of Nigeria (CBN), should intervene effectively to save the value of the Naira and protect the macro-economic gains achieved in the last four years, otherwise, we will be repeating our experiences four years ago," said Borodo.
Chief Solomon Onafowokan, President of the Lagos Chamber of Commerce and Industry (LCCI), corroborating the position of MAN.
According to him, the depreciation would fuel inflation through increase in procurement costs, higher absolute values of import duties, VAT and port charges all of which would increase proportionately to the degree of depreciation. These would be transmitted to the economy through higher prices.
LCCI, he stated, has noted that there is also a direct relationship between inflation and interest rate, warning that the cost of fund would come under pressure in 2009.
His words: "I have reviewed the economic outlook to put in context the policy choices in this potentially challenging year. The LCCI feels strongly that appropriate policy choices by government could go a long way to mitigate the challenges and shocks, and some of the policy choices we propose include the following:
*Governments at all levels should refrain from the imposition of new taxes or raising tax rates on the private sector in 2009. The current investment climate is bad enough. An added tax burden would completely stifle and strangulate the private sector and the economy. We believe that governments at all levels could achieve marked improvement in revenue through improved efficiency in the collection and administration of existing taxes.
*Fiscal prudence in the public sector is now more critical and imperative than ever before. Governments at all levels should demonstrate greater prudence in the management of their finances.
The spending patterns of the last eight years are no longer sustainable. Thus drastic cuts in public sector spending (especially recurrent spending) are imperative in the spirit of the prevailing economic conditions.
*The recent imposition of excise duty on detergent, cosmetics, alcoholic beverages and fruit juice, spaghetti and noodles, toilet paper and facial tissues, cartons should be reviewed in the light of the numerous challenges already facing the real sector. The proposal for an upward review of VAT should be put permanently on hold.
*The state of the power sector has become an inexcusable national embarrassment. Government should resolutely and sincerely commit itself to the target of 6000mw of electricity generation by end of 2009. Transmission and distribution issues should also be concurrently tackled very urgently. The economy would stagnate if the present state of the power sector does not improve dramatically.
Need to Speak Up
The Nigeria Employers Consultative Association (NECA) and the Nigeria Labour Congress have called on the federal government and the Central Bank of Nigeria to tell Nigerians the true position of the economy even as NECA warned that the crash of the Naira could lead to job losses, drop in capacity utilisation, higher cost of production and a drop in the purchasing power.
Speaking to Vanguard on the crash of the Naira yesterday, the Director-General of NECA, Mr. Olusegun Oshinowo, said, "The managers of this economy should address the state of our economy and our currency".
He said, the implication, is that "costs will go up, capacity utilisation will drop, there will be lay-offs and purchasing power will drop".
NLC's general secretary, Comrade John Odah, described the crash of the Naira as tragic. He also called for transparency on the part of the government. His words, "It is tragic and it shows that our economic managers have not been able to protect our currency and economy from the global financial melt down. It shows the hollowness of claims that we are not going to be affected".
NECA director-general said, "We need somebody to come up and tell us what is going on. We are in a crisis and we are not acknowledging this".
Speaking in the same vein, NLC general secretary, John Odah, said, "Something must be done urgently. Government and our economic managers must tell the people what is being done about the economy".
Both Oshinowo and Odah said in developed countries, their governments would have informed the people about the state of the economy and what is being done.
In the words of Comrade Odah, "In other countries people know what their governments are doing. The Central Bank of Nigeria must tell Nigerians what it is doing with our national economy and currency".
Mr. Oshinowo said government's statement on the state of the economy is urgent and necessary now. He recalled, "In December 2008, we had to dip our hands into our foreign reserves to the tune of $6 billion. In the light of dwindling oil production, government must come out and to say something."
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The job loses is a function of fast deteriorating economy. President Yar'Adua should call all experts and mostly those who served during Obasanjo's administration to stop the downward trend in the economy before it is too late. GOD SAVE NIGERIA!
Active Discussions: Job Losses Loom as Naira Crashes Further